Size Matters With Signatures
Researchers find a correlation between declining firm performance, narcissism and large signature size on annual SEC filings.
Oct 26, 2017

Size Matters With Signatures

As Featured In 
Review of Accounting Studies

Big John Hancocks Signal Narcissism

It turns out, size does matter. Nick Seybert, associate professor of accounting and information assurance at the University of Maryland's Robert H. Smith School of Business, studied CEO signatures and found the size reveals a lot about the leader and the long-term performance of a company. The largest John Hancocks signal an egomaniac at the helm and indicate lagging returns for a firm.

Seybert and co-researchers, Charles Ham (Smith PhD) of Washington University in St. Louis and Sean Wang of Rice University, used customized software to download and measure about 600 CEO signatures from annual SEC filings of companies in the S&P 500 to study the relationship between CEO narcissism and the firm’s investment policies and performance. They analyzed the measurements against the collective profitability and returns on investment levels of the CEO’s companies.

The researchers found a striking correlation between declining firm performance and large signature size. Drawing on previous psychology research, they used signature size as a reflection of a CEO’s ego size. Characteristically, these narcissistic CEOs are risk takers, unilateral decision-makers and prone to dismissing feedback and blaming other factors for their personal failures. They hold strong influence over those they lead and report to — they are good at convincing others that their ideas and decisions are the right ones, even when they are not.

According to Seybert’s results, all of that narcissistic behavior leads to declining company performance over the long term. The research reveals that these types of leader overinvest in research and development and mergers and acquisitions (but not capital expenditures). Firms led by narcissistic CEOs experience lower profitability and operating cash flows. But even with their poor track records revealed in their firm’s performance, the findings show that these egotistical CEOs still manage to draw better compensation packages than their less-narcissistic counterparts.

Seybert’s study is the first to use signature size as a measure of CEO narcissism. The researchers accounted for firm characteristics such as size according to total balance sheet assets, book-to-market value, investment regressions, company leverage and sales growth. They also controlled for factors possibly affecting CEO behavior such as age, gender and tenure with the firm.

Though narcissistic leadership erodes firm performance over time, Seybert’s diagnosis could be worse. The researchers investigated whether the stock market would react to the negative effects of this narcissism and did not find a strong correlation. They also looked at whether CEOs cheated on their accounting practices or inflated their earnings and did not find evidence.

Read more: Narcissim Is a Bad Sign: CEO Signature Size, Investment, and Performance is featured in the Review of Accounting Studies.

About the Author(s)

Nick Seybert received his M.S. and Ph.D. from the Johnson Graduate School of Management at Cornell University. He conducts experimental and archival research in financial accounting with a focus on manager personality traits as well as on investors' and managers' decision-making biases. His research has been published in leading journals, including the Accounting Review, Journal of Accounting Research, Management Science, and Accounting, Organizations and Society. Prior to joining the Smith School, he was a faculty member at the University of Texas at Austin's McCombs School of Business.

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